Working your Way into the Poor House

The basic promise of modern America was that you can work hard and get ahead.  These days, that promise  goes undelivered daily.  The gap between the promise and the delivery is widening exponentially and it’s time for all of us to get the few to listen.  The basic problem in our economy  is that we are not producing jobs that help working families meet basic needs.  I see this a lot down here in New Orleans where many of our homeless people sleep on air mattresses in front of the shelter at night but  have jobs in the French Quarter during the day. They wash dishes or straighten beds.  They work and they work hard.  Yet, they cannot afford basic shelter in a southern city with relatively low costs of living compared to other places.  This is not the Social Contract we’ve been taught in our schools for years. Working a job is not supposed to mean you can’t get your children to the doctor or put a roof over your head.

I wanted to highlight the recent findings of an income insecurity study for you.  Then, I’m going to talk about the role of wage and income stagnation in all of that.  I felt that just possibly you might take your Sunday afternoon to look at the people around you and appreciate the struggle. The first study was commissioned by Wider Opportunities for Women. The results were highlighted in the New York Times. The uncovered realities are harsh and make the future for many folks in this country look unpromising.  WOW was looking for an index–now called National BEST–to demonstrate how much it takes to minimally exist in the US as a middle class family and how far short some of our citizens have fallen of that minimal standard.  It’s a slightly upscale version of the Poverty index.  It basically tells you what it takes to be marginally working/middle class.  This measure includes good nutrition, a small sedan, and some basic savings for retirement so it’s not a survive or die measure.  It measures what it takes to really have the minimal American Dream. It’s what every American would have if our country met its Social Contract with working Americans.

According to the report, a single worker needs an income of $30,012 a year — or just above $14 an hour — to cover basic expenses and save for retirement and emergencies. That is close to three times the 2010 national poverty level of $10,830 for a single person, and nearly twice the federal minimum wage of $7.25 an hour.

A single worker with two young children needs an annual income of $57,756, or just over $27 an hour, to attain economic stability, and a family with two working parents and two young children needs to earn $67,920 a year, or about $16 an hour per worker.

That compares with the national poverty level of $22,050 for a family of four. The most recent data from the Census Bureau found that 14.3 percent of Americans were living below the poverty line in 2009.

Wider Opportunities and its consulting partners saw a need for an index that would indicate how much families need to earn if, for example, they want to save for their children’s college education or for a down payment on a home.

So, we’re talking a minimal, humble “American Dream” which, again, is what we’ve been promised for our hard work.  This dream does comes from hard work and not some one’s daddy’s trust fund like the Koch Brothers or Paris Hilton.  These people work . More and more, working does not pay for them and it is creating problems for us all.  The most disenfranchised are workers who have not completed high school and have no training.  The recession has only made this worse and the recovery does not appear to be bringing anything better.  Still, I hear nothing about helping these people prepare and find work.

We have no discussions about what it means to be working and poor in America.  I hear only about cutting budgets.  We’d have never won World War 2 with that attitude. If they’d have worried about the debt left to me and my generation, we’d have a completely different world right now. That appears to be what they want to leave to our children. We are building a world where the Social Contract for the American Dream is broken and no one wants to pay to get it fixed.

For some of the least educated, Mr. Waldman fears that even low wages are out of reach. “Given the needs of a more cognitive and more versatile labor force,” he said, “I’m afraid that those that don’t have the education are going to be part of a structural unemployment story.”

Even for those who do get jobs, it may be hard to live without public services, say nonprofit groups that assist low-income workers. “Politicians are so worried about fraud and abuse,” said Carol Goertzel, president of PathWays PA, a nonprofit that serves families in the Philadelphia region. “But they are not seeing the picture of families who are working but simply not making enough money to support their families, and need public support.”

In New York, Áine Duggan, vice president for research, policy and education at the Food Bank for New York City, estimates that about a third of the group’s clients are working but not earning enough to cover basic needs, much less saving for retirement or an emergency. She said that among households with children and annual incomes of less than $25,000, 83 percent of them would not be able to afford food within three months of losing the family income. That is up from 68 percent in 2008 at the height of the recession.

We have a “Wageless” Recovery.  Incomes are only going up at the extreme upper levels.  Every one else is losing lifestyle and yet, they are working hard.  Employment Policy Research Network (EPRN) researcher Frank Levy of MIT has released a monograph called ‘Addressing the Problems of  Stagnant Wages’.  (Yes, I know, I actually read these things with relish and print wonky graphs for you on a sunny Sunday afternoon because of some weird inner trait of mine I really can’t name.)  Just reading his introduction takes me back to my childhood in Iowa where farmers bought trucks from my dad and I knew everything would be alright if I just went to college and got a degree.

In the three decades after World War II, a central feature of the American economy was a mass upward mobility in which each generation lived better than the last, and workers experienced earnings gains through much of their careers. In short, the American Dream was alive and well. The central drivers of mass upward mobility were real wages for most workers that grew in line with overall labor productivity. Because of rising real wages a 40-year-old male blue-collar worker earned more in the late 1960s than most managers had earned in the late 1940s.

The alignment of wage growth and productivity growth resulted from two main factors: labor markets for most groups of workers in which demand matched supply, and the post-World War II Social Compact that emerged from the Great Depression helped to propogate wage norms throughout the economy, norms that were enforced in part through collective bargaining and professional personnel/human resource management practices.

By the 1980s, both of these factors had reversed. Labor demand increasingly shifted toward more educated workers – particularly well-educated women. At the same time, the post-war Social Compact was challenged by the inflationary 1970s and collapsed in the 1980s. Nothing has emerged to replace it.
Now, in the absence of a labor market boom like that of 1996-2000, increased labor productivity no longer translates into rising real wages for many groups of workers.

Well, that’s all and fine, but how do we address the problems that we’ve got now?  How is it that so many of us can work and do the right thing and still not make ends meet?  Well, that’s the policy part of the paper and there are suggestions.  The author argues that during the last three decades business and government have broken the Social Contract. He’s got some suggestions.  One of them is pretty basic.  That would be increasing the High School Graduation rate and trying to get employers to buy into the idea that they must providing training and education opportunities to their workers.  If they don’t, then society must offer this as a public good because provision of the good is cheaper than the social costs of not providing the good.

Increasing the number of college graduates requires dealing with two potentially related obstacles. One is the stagnation since the early 1970s in the high school graduation rate at approximately 75 percent.25 The failure to increase the high school graduation rate explains about one-half of the slowdown since the 1970s in the growth in the rate of college completion (Bailey and Dynarski, forthcoming). The other is the weak ability of high school graduates, once in junior college or college, to complete a degree. The historically large college-high school earnings gap has caused a growing fraction of high school graduates to start higher education, but the fraction who complete a bachelor’s degree has increased only modestly for women over the last twenty years and has remained basically flat for men.

There’s also a pretty good discussion of the idea of charters schools and inflicting the competitive charter school model on the education system that follows with some really good questions.  Other proposals include making certain that we invest in the jobs and industries of the future even if the private sector isn’t doing their share.   There’s also some discussion of how to encourage better labor-management relations and laws but given the demonization of working people–even by working people themselves–the author doesn’t hold much hope for the national discussion that needs to take place on less combative and abusive management practices.

One of the things that I do want to bring up is the role of using the classification “independent contractor” and how it’s allowed businesses to get around paying workers.  It is thought to be responsible for a chunk of the wage stagnation and to many of the lost benefits problems leading to the loss of middle class lifestyles.  It worries me greatly that many tea party governors are actively trying to dismantle labor laws. They are even trying to get rid of child labor laws so businesses can get access to children under 14 again.

One necessary but far from sufficient requirement for setting and maintaining a floor on wages for hourly workers, and especially for low-wage hourly workers, is that federal and state wage and hour laws are enforced vigorously and as uniformly as possible. Recent studies have shown there are widespread violations of wage and hour laws ranging from failure to pay minimum wages, overtime, required meal and rest breaks, and misclassification of employees as independent contractors. One recent study estimated these types of violations have the effect of lowering wages of affected workers by 15 percent

One of the major themes in the research is on the increased role of the financial markets in the breakdown of the Social Contract.  The growth of the finance industry has come with the loss of manufacturing. Not only is this due loss of manufacturing jobs that are now lower paying services jobs, but it has caused incomes to shift from labor to capital.  The political power and rise of the financial class has a lot to do with this trend. These people don’t just want ordinary returns on their money.  They want extraordinary returns.  Squeezing costs is usually the short sighted, short term way to achieve that.

I’d like to close with an interview with Cornel West that encapsulates some of the problems.  It’s a little old.  I grabbed it from Naked Capitalism; also a place concerned with policies that impact middle class Americans.  Listening to the interview made think again about our priorities and our need to enforce the American Dream Social Contract once again. Dr West talks about the experience of poor and working class blacks in this clip, but many of the same things can be applied to any and all poor and working class Americans.  I think it’s time we start the discussion.  The country’s in trouble when an increasing amount of income comes from shuffling paper between financial institutions and bonuses replace wages for a hard day’s work.

Okay, here’s an update from Zerohedge I have to share.  Look at the number of US citizens on Food Stamps now.